Hong Kong Monetary Authority Reviews Currency Board Operations Amidst Global Economic Divergence

The
Hong
Kong
Monetary
Authority
(HKMA)
recently
released
the
minutes
of
the
Exchange
Fund
Advisory
Committee
Currency
Board
Sub-Committee
meeting
held
on
July
5,
2024.
The
discussion
centered
on
the
stability
of
the
Hong
Kong
dollar
(HKD)
and
the
broader
economic
landscape,
according
to

Hong
Kong
Monetary
Authority.

Currency
Board
Operations

During
the
review
period
from
April
25
to
June
25,
2024,
the
HKD
traded
within
a
narrow
range
of
7.7987
to
7.8294
against
the
US
dollar
(USD).
The
HKD
exchange
rate
strengthened
between
late
April
and
mid-May,
driven
by
dividend-related
funding
demand
and
vibrant
equity
market
activities.
Subsequently,
it
remained
largely
stable.
HKD
interbank
rates
continued
to
follow
USD
rates,
influenced
by
local
supply
and
demand
dynamics.
The
Aggregate
Balance
was
stable
at
around
HK$45
billion,
and
the
Convertibility
Undertakings
were
not
triggered.
No
irregularities
were
reported
in
the
usage
of
the
Discount
Window,
indicating
smooth
and
orderly
trading
in
the
HKD
exchange
and
interbank
markets.

The
Monetary
Base
increased
to
HK$1,917.51
billion
by
the
end
of
the
review
period.
Consistent
with
Currency
Board
principles,
all
changes
in
the
Monetary
Base
were
fully
matched
by
changes
in
foreign
reserves.

Monitoring
Risks
and
Vulnerabilities

The
Sub-Committee
highlighted
the
asynchronous
economic
developments
across
advanced
economies
(AEs),
noting
divergent
central
bank
policies
in
response
to
varying
growth
and
inflation
trends.
While
the
US
Federal
Reserve
maintained
its
stance
in
June
due
to
persistent
inflation
and
robust
job
growth,
several
AE
central
banks
began
lowering
rates.
The
Fed’s
“high
for
longer”
forward
guidance
may
continue
to
strengthen
the
USD
and
impact
the
exchange
rates
of
emerging
market
Asian
economies.
Additionally,
elevated
global
interest
rates
could
challenge
asset
valuations
and
the
credit
quality
of
the
private
sector.

In
Mainland
China,
economic
recovery
remained
uneven,
characterized
by
strong
external
trade
but
weak
domestic
demand
and
sluggish
property
market
activities.
Market
sentiment
improved
following
a
more
supportive
policy
tone
from
the
April
Politburo
meeting,
which
included
pledges
to
reduce
housing
inventory.
However,
the
outlook
remains
challenging
due
to
the
complex
geo-strategic
environment.

Hong
Kong’s
economic
activities
expanded
in
Q1
2024,
driven
by
a
significant
increase
in
merchandise
exports
and
an
upturn
in
the
global
tech
cycle.
The
domestic
economy
is
expected
to
recover
at
a
moderate
pace
in
2024,
although
it
faces
risks
and
uncertainties
related
to
the
US
policy
rate
path,
global
economic
prospects,
and
geopolitical
tensions.
Despite
active
residential
market
transactions
following
policy
relaxations
in
late
February,
market
sentiment
turned
cautious
in
May
amid
new
property
launches
at
competitive
prices
and
renewed
uncertainty
surrounding
the
US
policy
rate
path.
The
commercial
real
estate
market,
particularly
the
office
segment,
remained
subdued.

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source:
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